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Thursday, December 17, 2009

The Challenges Facing Argentina's Cattle Industry

Hey folks, you'll need about 10 minutes to get through this one. I just turned this in for a final paper so I don't know what grade I've gotten, but it's pretty good. There's a lot of history in here, so get ready to learn. There was an introductory essay that goes along with it, but it's not as important, so I'm leaving it out. What? You expected some Tiger Woods stuff? Eh, maybe later.-----------------------------------------------------------

Part one of this two part essay introduced cattle ranching and beef production in the South American country of Argentina. A very unique nation, Argentina’s large size, varied geography, economic potential and its melting pot culture make it one South America’s few leaders on the global stage. Despite its share of operational shortcomings and history of crises—both economic and political—Argentina has managed to remain an intriguing case study in a number of subjects. More specifically, Argentina’s beef industry and its ties to the culture (both current and past), make it a remarkable backbone and source of pride for this nation. It is truly a way of life, as Argentines consume nearly 160 pounds of beef per capita annually—the highest rate in the world.

Of course, like most Latin American and Caribbean countries, Argentina has its fair share of challenges. Political upheaval, monetary inflation, and difficulty in the commercial sector are nothing new. Through it all, the one true constant of Argentina has been cattle ranching and beef production, although today, even this steadfast industry is facing its own challenges. Global economic conditions, governmental tax impositions, and drought have led to decreased beef production and financial hardship to many ranchers and related industries. With so much adversity, the industry is struggling as a whole and there are a myriad of causes to be explored. In order to fully grasp the policies and struggles of today’s Argentina, one must understand the complex events of yesterday.Early History

Prior to Spanish explorers arriving in 1516, Argentina was generally unsettled and lightly ruled. Although the Incan empire once claimed parts of Northern Argentina and indigenous herders and nomads roamed part of Patagonia, it was sparsely populated with no developed centers. The Spaniards established the first permanent settlement (Buenos Aires) in 1580. At that time, the Argentine territory was annexed as part of the Spanish colony of Peru (The “Viceroyalty”), which had been settled prior to Buenos Aires. Areas outside of Buenos Aires supported only small numbers of indigenous people and nomadic rough and tumble herders later called Gauchos. The main settlement of Buenos Aires was then populated by Spanish expatriates in addition to a number of African-descended slaves.

Beginning a long tradition of sparring with Great Britain, the Argentines managed to stave off two attacks by English forces at the turn of the 19th century. Britain, long at odds with France (which was allied with Spain at the time), attempted to overwhelm and usurp the fertile, promising lands of what is now Buenos Aires and Montevideo, Uruguay. In 1806, the British sent a small unit of 1,500 soldiers to capture Buenos Aires. Despite a small standing Colonial army, the Spanish viceroy managed to recruit a modest militia of Spanish and local Argentines. This ragtag band of settlers and indigenous peoples drove the British out for nearly a year.

The following year, in 1807, after seizing the would-be capital of Montevideo, Uruguay, a platoon of approximately 8,000 British soldiers marched south toward Buenos Aires. A confident and dogged militia met the British army with fierce resistance on the streets of Buenos Aires and repelled the well-equipped Brits. This was extremely similar to the American Revolution some thirty years earlier. The defense of the settlement led to a unified population, which only gained strength through the following years. The newfound cohesion of the populace, coupled with the fact that the Spanish Viceroyalty only allowed trade with Spain, led to the May Revolution in 1810 as well as the Argentine declaration of independence in 1816 (Nouzeilles & Montaldo). Power was assumed by the Junta Primera, ironically the first of several authoritarian or military regimes.

Following the Argentine declaration of independence from Spain, and other subsequent events that helped define the scope of this young nation, the first of several authoritarian regimes took hold—the regime of Juan Manuel de Rosas. De Rosas and his Federalists (Federales) took power in 1829, in a victory over the Unitarians (Unitarios). The Unitarians sought to centralize power over all the provinces in Buenos Aires, while the Federalists gave a broader scope of power to the provinces—preferring to run the country as a loose confederation (Nouzeilles & Montaldo). The schism between the two groups was both cultural and geographic. Unitarios were more learned and of the urban elite centered in Buenos Aires. Conversely, Federalists were from rural, undeveloped areas and a bit rough around the edges, so to speak. Naturally this led to a period of mistrust and fear. De Rosas ruled with an iron fist over the near quarter-century he was in power. This period was known as “The Terror”. De Rosas’s consolidation of power in conjunction with his fear of losing power to the Unitarios led him to imprison and torture political dissidents. Small roving militias named Mazorcas roamed the streets after dark in Buenos Aires, killing people with knives and spreading a deep fear amongst non-Federalists.

Following de Rosas’s overthrow and the drafting of a Constitution, the golden years of early Argentina began to develop and unfold. A successful defense of the homeland against an ill-advised onslaught by Paraguay helped unify the population that had so recently been living under a maniacal regime. Beginning in the 1870s European investment , in addition to massive immigration took place, creating a hopeful new land of new faces and potential (Lewis, D.) .Late 19th Century to Present Day

Throughout the next 20 years, Argentina’s modernizing economy led by a strong export-led agricultural sector, transformed it from a divided young nation, into the tenth richest economy in the world. Hundreds of thousands of Italian, Spanish, Portuguese, German, and other assorted Europeans flocked to this new land of opportunity, just as they did to the United States. Ornate models of French and Italian architecture lined the plazas of Buenos Aires, and the city began its reign as the “Paris of the South”

After recovering from the globally-felt effects of The Great Depression and its first military coup in 1930 by conservatives, General Juan Peron was elected in 1946. The Populist policies of Peron and his wife Evita, led to the establishment of many workers unions, urban development and a number of government programs. Despite these positives, Peron’s isolationist policies and stranglehold over the media resulted in severe inflation of the national currency and directly led to the loss of significant amounts foreign investment capital (Lewis, P.).

Following a political tug of war that saw Peron swept back into office after 15 years in exile, the country was overtaken by a violent military coup in 1976—two years after Peron had passed away and left his unprepared third wife in power. This period from 1976 to 1983 was one of the bloodiest and oppressive campaigns the Americas have ever seen. Despite some economic progress made through public works programs, this heavy-handed right-wing military regime did more harm than good. Tens of thousands of dissidents and liberals were “disappeared”, while thousands more were imprisoned during the bleakest time of Argentina’s history. This period of time during the Proceso regime is known as “The Dirty War” (Anderson). In addition, short-sighted economic policies helped to create massive foreign debt, and standards of living decreased for most of the country (Lewis, P.).

After a short war with the British resulting from the unsuccessful takeover of The Falkland Islands (Las Islas Malvinas to the Argentines), the brutal Proceso dictatorship was deposed in 1983. The poor economic conditions left behind by this regime led to massive inflation and huge foreign debt (Lewis, D.). Privatization of many industries and a new dollar-pegged peso helped President Carlos Menem settle the economy down, but due to the artificial nature of the currency’s value, the economy went south once again in 1999 as inflation ran amok. The unpopular and defiant Menem left office shortly thereafter (Lewis, P.; Anderson, L.).

Immediately following Menem’s presidency, the newly elected Fernando de la Rua was in an unenviable position. With massive deficits and the loss of investment capital, drastic measures were taken, such as the freezing of all savings and checking accounts across the country, basically preventing the middle class from accessing any of their savings, while the banks declared insolvency. This literally destroyed the savings and pensions of five million middle class Argentines. The economy went into a free-fall, lowering GDP growth to a -15%. This led to 25% unemployment. Much of the crisis could be attributed to the artificial peso-dollar valuation put into place by Menem and his economic “czar” Cavallo in the 1990s. In comparison to other countries in Latin America, Argentina’s goods were too expensive because the country was basically dealing in American dollars. As a result, foreign markets shrank. In 2001, foreign debt service reached 50% of Argentina’s gross domestic product, and it owed nearly $30 billion dollars in debt payments in 2002. The country had no choice but to default on its many foreign loans, and a period of further economic crisis and civil unrest occurred—both in the government and in the streets.

Civil strife resulted in one of the most bizarre presidential sequences in the history of democracy. After de la Rua’s resignation, three different presidents were sworn in within 10 days, with a fourth, Nestor Kirchner being elected in 2003, at which time the economy had somewhat stabilized. After paying off debts to the International Monetary Fund and nationalizing some industries (such as utilities), Kirchner left office in 2007 in favor of his wife, Cristina Fernandez de Kirchner (Petras).

Agricultural upheaval and current economic policy

The two Kirchners' center-left governance policies helped stabilize positive growth within Argentina since 2003. However, high export taxes on agricultural products like soybeans, and for this paper’s ultimate purpose, beef, have led to massive protests by ranchers, farmers, and agricultural/livestock processors alike. In 2006, with internal beef prices rising due to a number of factors, Kirchner banned the export of all beef for 180 days. This led to severe blockades and demonstrations by ranchers, essentially crippling the food supply of the country. Kirchner later backed off the outright ban, but instead instituted an export quota, lowering production nearly 40%. In 2008, Kirchner attempted to levy a 35% export tax on soybeans, one of Argentina’s chief agricultural exports. Predictably, farmers rioted and led a months-long strike. At stake for the government was 10% of all tax revenue, which it was receiving for the 35% soybean export tax. Despite encouragement from economic advisers, Kirchner rejected proposals to cut spending on infrastructure and to levy fewer export taxes on agricultural products. Debt payments, the global economic crisis, compounded by Kirchner’s populist social spending programs, have put both the government and the agricultural sector in no win situations.

Drought and the cattle crisis

As discussed part one of this two part essay, the fertile grasslands north and west of the capital region of Buenos Aires are called The Pampas. It is there that most agricultural production takes place. Typical climate for summers in the Pampas (December through March) are warm and humid. Average temperatures during the day range from 75 degrees Fahrenheit to about 90. During the winter (summer in the Northern Hemisphere), it cools off to generally between 45 to 60 degrees during the day. This climate and geography are similar to that of the American regions of California’s Central Valley, North Texas and Oklahoma as well as the veldts of South Africa and parts of Eurasian steppes. This semi-arid, temperate region covers approximately 290,000 square miles, most of which lie within the North-Central part of Argentina. Its mild climate produces an annually evenly-distributed mean precipitation of approximately 24 to 47 inches of rainfall per year. Because there are no distinct rainy or dry seasons, edible grass and other flora thrive in this region— creating a perfect locale for livestock grazing and crop cultivation.

For nearly 200 years worth of ranching, this has been the climate—something totally ideal for the cultivation of large herds of cattle. Unfortunately, the country, and more specifically the Pampas region has been mired in a terrible drought; the worst in 50 years. To put this in perspective, in the time period from November 1, 2008 through January 24, 2009, most of the Pampas region received only four to seven inches of rain. During that time period, monthly rainfall totals should equal an average of five inches. With that said, from November 1 to January 24, the Pampas received somewhere between 30% and 50% of normal rainfall; clearly not enough.

The current drought is being described as being caused by La Nina, the dryer, cooler sister of the El Nino phenomenon that generally produces more rainfall than normal. According to the National Weather Service, “During La Niña, temperatures average two to six degrees (F) below normal between the date line and the west coast of South America. This large region of below-average temperatures coincides with the area of well below-average tropical rainfall. For both El Niño and La Niña, the tropical rainfall, wind, and air pressure patterns over the equatorial Pacific Ocean are most strongly linked to the underlying sea-surface temperatures, and vice versa.” At this point of mid-December, 2009, it is unknown as to whether the drought is over, as Argentina is just entering summer and the beginning of its rainiest time of year.There is no overwhelming or specific evidence thus far that the current drought is caused by any kind of climate change. This region has gone through previous heavy droughts, specifically in 1962, 1985-86, and 1995. A 2005 study published in the Meteorology and Atmospheric Physics Journal reveals the same tale of the tape. According to the authors, the aforementioned past “…rainfall deficits (droughts) were concurrent with the strengthening of the sub-tropical anticyclone in the eastern Pacific, abnormally high pressure in Central and Northern Argentina, and the development of a cyclonic anomaly in the southwest Atlantic which coincides with colder ocean surface temperatures.”

The current crisis is simply the perfect storm of negative factors. As mentioned in part one of this essay, to raise a herd of cattle, one must have a large amount of land with adequate water supplies. The average cow, depending on gender, size, and stage of life, drinks between 4 and 20 gallons of water each day. The smaller the cow and the cooler the ambient temperature, the less water intake is required. Larger animals that have reached maturity, obviously consume the most water during warm weather. In addition, cows that are nursing or pregnant, consume about 25% more water per day than non-nursing females and about the same as full grown bulls. To put this into a real world example, if a rancher has a herd of 100 cows, and they drink an average of 10 gallons of water per day, the resulting total is 1,000 gallons—a staggering amount when faced with the competition of millions of other cows, corn, and soybean crops in the same region.

As many ranchers typically “repopulate” their herds— the process of stocking next year’s herd with the calves of the current year—they are facing particular difficulty right now. With rivers slowed down to a trickle and the parched land unable to provide the necessary grass feed, ranchers are facing tough choices. The Argentine gaucho has traditionally sustained a large amount of their business through the cycles that its own herd goes through in a free-range grazing situation.

Many cows that are capable of producing four to five calves over their lifespan may be birthing one—or none at all due to a lack of food and water. The rancher then has two options: forsake the traditional ranching method in favor of a densely packed, expensive feedlot stocked with corn or tomatoes, or send his valuable cows to slaughter before he extracts maximum value out of them. Choice number one results in zero profits or a net loss, and choice number two results in the same outcome due to the fact that the rancher must then purchase more cows at auction to keep his herd going.

It is truly an unenviable position for the country of Argentina and its proud, yet struggling agricultural sector. With global financial markets beginning to stabilize and the beginning of the rainy season, perhaps the worst is over. However, current internal economic and political policies could choke the life out of the Argentine beef industry just by attempting to keep itself afloat amid deficit spending and a weak currency. As many ranchers have been forced to switch from cattle herds to corn, soybeans, and other cereals, this beef-loving country could be on the verge of importing beef from Uruguay for the first time ever. As one Argentine rancher put it, “That would be a day I never thought I’d ever see.” (BBC News).

2 Comments:

Buenos Aires is beautiful. I'm sure you'll do very well on this paper. I lived there for two years as my grandmother ailed.. I still follow the soccer team as I did when I was 6 and 7. This was just prior to "1976" and the changes you speak of. Nice peice. Be well.http://thebrooklyntrolleyblogger.blogspot.com/

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